Revision as of 17:47, 16 February 2018

Abstract

This article will present a review of the tendering phase and contract management of project procurement management. Decision factors and methods for a company's procurement division when selecting a supplier and negotiating a contract will be presented. Multiple factors should be considered when selecting a supplier and when the supplier has been chosen, a contract must be designed with some main objectives. The company must decide between a pool of sellers, which they seek offers from, or choose to negotiate with a given seller. When negotiating a contract, the main things to consider are to ensure that buyers are able to meet their customers' demand and propose a system where the supplier and the buyer share risks and cost. The article will first introduce briefly the definition of procurement and contracting separately, and then explain the relationship between the two. The article will then be divided into five main parts; defining the problem, defining the buyers' needs, determining the qualification of a supplier, choosing a supplier, and finally the negotiation factors. ^{[1] [2]}.

Contracting and Procurement

Procurement

"Procurement is the acquisition of goods, services or works from external sources." The goal of procurement management is to identify a supplier to procure goods and services for a specific company. Suppliers can provide all from raw materials to finished products. Project Procurement Management spans a wide range and is present throughout the whole project process. Furthermore, this article will cover the tendering phase and contract management.

Contracting

"An agreement between two or more parties, especially one that is written and enforceable by law." Contract management involves creating a contract, negotiating terms and conditions, compliance, execution and analyzation. In Project Procurement Management legal documents, or contracts, are made between the buyer and the seller. It is a document stating that the seller will provide some value in return for compensation from the buyer.

Contracting in Procurement

All companies have to make a decision to produce in house, or outsource the production. If the benefits for outsourcing exceed the benefits of producing in house, companies must find a supplier that is reliable and maintains a certain standard. Project Procurement Management includes all processes needed to deliver goods or services from outside the project team as well as the development of contracts issued with the supplier. In this article the scope of the buyer will be explored.

Defining the Problem

How much should the company itself produce, what is cheaper and/or justifiable to outsource? The first step is to define whether a problem is present. If companies lack capacity, if production is expensive, if they do not have the people, skills, or knowledge to execute, other solutions should be investigated. One of the solutions is outsourcing. Outsourcing is when a company requests goods or services from an outside party. Advantages and risks of outsourcing need to be evaluated, and an optimized plan developed for make/buy decisions. Justifications should be presented for outsourcing, and a production plan for in house production. A meaningful procurement strategy should be developed, with the following factors considered: products services technologies financial plan global presence geopolitical and economic risks growth plans competition customer satisfaction corporate social responsibility regulatory and political environment employee growth and satisfaction All available information about these factors should be gathered through company strategic and operational plans, annual reports and executive management input.

Benefits

The benefits of outsourcing are: Economies of scale Risk Pooling Reduce capital investment Focus on core competency Increased flexibility

Risks

The risks of outsourcing are: Loss of Competitive Knowledge Conflicting Objectives

When the procurement strategy has been defined and all outsourcing decisions been determined the next step is to define the buyer's need.

Defining the Buyer's Needs

Which goods, services or works will be outsourced and how much is needed?

Determining the Qualification of a Supplier

Analyze and investigate suppliers available, and determine qualification standards they are required to maintain.

Choosing a Supplier

Choose between suppliers that maintain the certain qualification standard, and now consider other factors, such as cost.

Negotiation Factors

Summary

Annotated bibliography

References

1. ↑ Manelli, A., Vincent, D. (1995). Optimal Procurement Mechanisms. Econometrica.
2. ↑ Boer, L., Labro, E., Morlacchi, P. (2001) A review of methods supporting supplier selection. European Journal of Purchasing and Supply Management.